🗞️ Sunday Digest: Private Markets Insights
What $566B in dry powder, 4:1 leverage, and shifting CRE dynamics mean for you
Happy Sunday!
I’ll share two excellent reports this week - one on private credit, the other one on CRE (from MSCI). But before we get to those, I’m going to walk you through something that doesn’t seem related to private markets on the surface. Trust me, it’s related all right, and has far-reaching implications for all of us.
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The Increasingly Unstable Things
“The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.” - John Kenneth Galbraith
Last week, a new finance company made a splash on social media. Basic Capital announced a product with a simple pitch: you can get a non-recourse loan against the value of your portfolio inside a retirement account.
The leverage is 4:1, but it’s not a margin loan (i.e. you don’t need to contribute additional capital if the value of your portfolio goes down below a certain threshold).
You can, however, lose 100% of your equity if the value falls just 20%.
(Side note: who is financing this?)
Let’s set aside the egregious fees or the fact that 85% of your portfolio gets allocated to a high-yield BDC and the rest to SPY. To me, a much bigger story here is the Pandora’s box this could open.
If we unlock a way to get 4:1 leverage on retirement savings (folks, we are talking trillions of dollars), we’ll effectively create a system where $5 chases every $1 of assets that would’ve been purchased unlevered.
That kind of multiplier effect will without doubt affect asset prices. What kind of systemic risk this has potential to create is not for me to say (let me know your thoughts!)
The post below was meant to be tongue-in-cheek, but maybe it’s not so far-fetched. We’ve already collateralized buy-now-pay-later Klarna loans. Why not do the same with 401(k) loans… and sell them to the very private credit funds those 401(k)s are invested in?
I’ve written about the challenges of evaluating of what’s inside private credit funds. I think a deeper dive on CLOs is in order:
The Rise (and Strain) of Private Credit
According to PitchBook, private debt raised $197.1B in 2024, outpacing venture capital for the second year and solidifying its spot as the second-largest private capital strategy after PE.
Perpetual NAV-based vehicles now account for about half of inflows.
Legacy closed-end funds are losing ground, and emerging managers are getting squeezed: they captured just 6% of fundraising in 2024.
Dry powder hit $566.8B (31.1% of total AUM!), spreads compressed, and competition intensified.
To adapt, banks and private lenders are teaming up. JPMorgan, Citi, and Wells Fargo have launched multi-billion-dollar partnerships with private credit firms.
Meanwhile, retail and insurance channels continue to grow their AUM exposure:
You’ll find more on private credit here .
🏢 The Loooooooong Turning Point for CRE
This is welcome news for investors in commercial real estate. After two volatile years, the U.S. commercial real estate market is showing early signs of stabilization:
Private capital is leading the charge, now accounting for 56% of all acquisitions, particularly in smaller, more distressed deals and tertiary markets.
Speaking of tertiary markets, here’s a recently published article:
Back to the report:
👉 Institutional players are still largely on the sidelines, waiting for more clarity. In this brave new world, performance will hinge on asset-level income growth, not beta-driven cap rate compression.
With that, thank you for reading (and supporting!) If you haven’t yet subscribed, now’s the perfect time:
I have some difficulty, Leyla, thinking that enough of the world would choose to pursue these loans to create systemic risk. Instead, they seem yet another excellent way to separate fools from their money.
If this kind of structure scales across retirement accounts, it won’t just distort asset pricing,it could force allocators to rethink long-held assumptions about capital stability. Private credit already has a complexity problem. Now we’re talking about layering retail leverage on top of that.
I’d be curious how LPs plan to underwrite that kind of tail risk, especially with NAV-based vehicles where transparency is limited. Feels like the next frontier isn’t just return, it’s risk transmission across layers most allocators assume are insulated.